PJM Interconnection, L.L.C (PJM) retained The Brattle Group (Brattle) and Sargent & Lundy (S&L) to review key elements of the Reliability Pricing Model (RPM), as required periodically under PJM’s tariff. This report presents our estimates of the Cost of New Entry (CONE). A separate, concurrently-released report presents our review of PJM’s methodology for estimating the net energy and ancillary service (E&AS) revenue offset and the Variable Resource Requirement (VRR) curve.

CONE represents the total annual net revenue (net of variable operating costs) that a new generation resource would need to recover its capital investment and fixed costs, given reasonable expectations about future cost recovery over its economic life. CONE is the starting point for estimating the Net Cost of New Entry (Net CONE). Net CONE represents the first-year revenues that a new resource would need to earn in the capacity market, after netting out E&AS margins from CONE. CONE and Net CONE of the simple-cycle combustion turbine (CT) reference resource are used to set the prices on PJM’s VRR curve.CT and combined-cycle (CC) Net CONE are used to establish offer price thresholds below which new gas-fired generation offers are reviewed under the Minimum Offer Price Rule (MOPR).

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